Malaysia to widen 1MDB probe to BN parties, politicians

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(June 21): Malaysia's new government has widened its investigation into state-owned 1Malaysia Development Bhd (1MDB) to cover flows of funds to parties in former ruling coalition Barisan Nasional (BN), in a move that could have far-reaching ramifications for the country's political landscape.

Senior government officials and financial executives told The Straits Times that investigators are looking into money flowing from companies tied to 1MDB and fund transfers from former prime minister Najib Razak's private accounts to key BN partners and politicians.

The probe, which is being carried out by regulatory agencies under the sweeping Anti-Money Laundering Act, has also extended to law firms tied to the previous administration, the officials said.

They declined to identify the political entities or private legal firms under scrutiny on grounds that the probe is at a very sensitive juncture. But they acknowledged that this new dimension of the inquiry could trigger serious political aftershocks.

The parties and legal firms in possession of funds that flowed out of 1MDB or its related entities could find their bank accounts frozen by the authorities pending a full investigation and trial. Elected representatives would not only have their bank accounts frozen but could also face being disqualified as MPs or state assemblymen if found guilty.

There has been widespread speculation that BN politicians financed their activities and campaigns with funds that flowed out of 1MDB.

The parties and legal firms in possession of funds that flowed out of 1MDB or its related entities could find their bank accounts frozen by the authorities pending a full investigation and trial. Elected representatives would not only have their bank accounts frozen, but could also face being disqualified as MPs or state assemblymen if found guilty.

Datuk Seri Najib set up the state fund in April 2009 to make strategic investments overseas. But it allegedly morphed into a private political slush fund for his administration, which was booted out of power in the May general election.

The 1MDB debacle has been the focus of one of the biggest multi-jurisdiction money laundering probes in the world, involving regulatory agencies from the US, Singapore, Hong Kong and Switzerland.

In separate complaints filed in 2016 and last year, the US Department of Justice declared that it was seeking to recover more than US$1.7 billion (S$2.3 billion) in assets traceable to funds allegedly misappropriated from 1MDB. The complaints added that another US$4.5 billion was diverted from the Malaysian fund and laundered through a web of shell companies and bank accounts globally.

The international investigations into 1MDB were a result of probes initiated by several Malaysian regulatory agencies, such as the Anti-Corruption Commission (MACC) and central bank, Bank Negara Malaysia, since late 2014.

Domestic investigations came to an abrupt halt in mid-2015 when Mr Najib sacked his then deputy Muhyiddin Yassin and other key officials, who he claimed were part of a conspiracy to remove him as prime minister. The purge allowed him to replace them with close allies, including a new attorney-general who immediately absolved his administration of any wrongdoing.

All that changed in the May 9 election, when BN suffered a stunning defeat to the Pakatan Harapan (PH) coalition led by Tun Dr Mahathir Mohamad. The 92-year-old Premier and PH leaders have vowed that all those responsible for the 1MDB debacle must be brought to book.

Government officials expect the Mahathir administration to level charges related to corruption, embezzlement of state resources and national economic sabotage against Mr Najib early next month.

While the legal proceedings are expected to drag on for years, the probe into the flow of funds to BN-linked entities and politicians could have more immediate repercussions.

The ability to dispense patronage has long been the lifeblood of key BN members such as the United Malays National Organisation (Umno) and the Malaysian Chinese Association (MCA).

Both parties have sizeable business interests.

Umno has long used its unfettered authority over government to dispense lucrative licences, contracts and powerful positions at state-owned entities to reward political warlords and senior officials. The party's business interests, grouped under a private company called Temasek Padu Sdn Bhd — estimated to be valued at roughly RM800 million (S$271.4 million) — features equity holdings in companies that operate the private Subang airport in the outskirts of Kuala Lumpur, a property project and a shipyard in East Malaysia.

The MCA's business assets, estimated to be in excess of RM3 billion, are grouped under a private entity called Huaren Holdings Sdn Bhd. Its investments include extensive property developments, control of Star Publications, which operates the country's largest English-language daily newspaper, and the running of higher learning institutions.

Government officials and bankers said that any direct links between these BN officials, who are also business nominees, with 1MDB-related funds could put these investment holdings at risk and severely disrupt plans by Umno and MCA to regroup after the election loss.

By-elections that may be called as a result of the disqualification of elected representatives being found guilty of receiving tainted 1MDB-related funds could further undermine BN's representation in Parliament. It now holds 57 seats — Umno with 54, MCA with one and the Malaysian Indian Congress with two — in the 222-seat Parliament, a far cry from the 133 seats it won in the 2013 election.